Buying Our Second Home - Best Way to Finance

lethalmoney on 14/09/2024 - 12:42
Last edited 14/09/2024 - 14:48 by 1 other user

Hi, I'm just looking for a best option to navigate buying & selling our primary residence.

We currently have a 3 bedroom property in Melbourne suburbs worth approx. $850k, with a mortgage of $340k. We have around 20k in cash, with a top up of 100k from family on top of that.

We are looking to buy a bigger home, approx. price of $900k in a neighbouring suburb, and then try and sell/settle simultaneously or as close as possible our current property.

What is the best course of action in this scenario with our current situation?

Thanks in advance

Financial

Comments

  • askbargain on 14/09/2024 - 12:47
    +32

    You want quality free advice? You’ve come to the right place.

  • 87percent on 14/09/2024 - 12:55
    +4

    60 day settlement on one, 30 day settlement on the other

  • AndyC1 on 14/09/2024 - 13:17
    +6

    Sell your current property and then buy. No dramas with finance as the post is written with no mention of non financial issues that have been thought of.

  • JIMB0 on 14/09/2024 - 13:30

    Have you found a house you want to buy yet? How easily/quickly do houses similar to your current house sell?

    • lethalmoney on 14/09/2024 - 13:34

      we are going to an open today, that appears to tick all the boxes. ESR of 800-880k.
      I'm currently in a relatively desirable suburb North Eastern suburbs. The suburb we are looking to move to has less of 'a name' to it… But it is literally 400 meters away.

      • MS Paint on 14/09/2024 - 13:39
        +4

        Ivanhoe and Heidelberg Heights ?

      • freefall101 on 14/09/2024 - 14:48
        +4

        ESR of 800-880k

        Is that a real ESR or a "get people in the door" ESR?

        Make sure to look at the actual prices of places that have sold in the area, and if it's a particularly nice example (if it ticks all the boxes for you, it will for other people too) to take that into account.

      • JIMB0 on 14/09/2024 - 16:36

        I have a feeling this house is going to be more expensive and harder to secure than you think. Might be best to hold off on selling your existing house, especially if it's the type that sells quick.

        • lethalmoney on 14/09/2024 - 17:12
          +1

          ESR is agents guide only.
          Will definitely go for low to mid 9's.

          There were 30 groups through the first inspection today, so reasonable interest.

          I think a bridging loan is probably the safest option. Will continue chipping away at improving this house while we find the right house to buy.

  • sumyungguy on 14/09/2024 - 14:31
    +2

    Bridging loan

    • lethalmoney on 14/09/2024 - 14:35

      Have you used one, how did it pan out for you?

      • sumyungguy on 14/09/2024 - 14:39
        +11

        Haven't needed to personally but this is how many people underwrite their property transfers. Otherwise you have to time everything perfectly and more than likely something won't run to plan. So many key transactions aren't within your control. BTW by making a leap sideways, not really an upgrade, you're going to lose bigly on real estate transaction costs.

      • Dubsys on 16/09/2024 - 15:25

        If you talk to the realtor sometimes you can get some leeway as well, we moved house a few years ago and mentioned that we were selling our current home and they gave us a few weeks of leeway in the contract to provide payment which gave us the time to get payment from the first sale.

  • Tee Rex Arms on 14/09/2024 - 15:10
    +8

    100k from family? Wow

    • AustriaBargain on 14/09/2024 - 16:01
      +3

      Born into the wrong family 😔

    • lethalmoney on 14/09/2024 - 17:03
      +16

      Yeah, not exactly received in the best circumstances, though.

      • mousie on 16/09/2024 - 21:08
        +6

        username checks out

  • JimmyF on 14/09/2024 - 15:32
    +3

    We are looking to buy a bigger home, approx. price of $900k in a neighbouring suburb, and then try and sell/settle simultaneously or as close as possible our current property.

    Nearly impossible to time selling and buying so you'll be looking at a bridging loan if you can't borrow the new property. Then you can buy, and then sell the old one.

  • soan papdi on 14/09/2024 - 16:07
    -5

    Sell your house first and discuss with buyer if 6 month settlement is acceptable. Pick a house in the next 4 months and settle quickly.

  • TEER3X on 14/09/2024 - 19:03
    +3

    Lots more stock on the market, appears properties in Melbourne are actually mostly selling within the quoted ESR.

  • SmiTTy on 14/09/2024 - 23:24
    +6

    Most stressful, best financially — try to time your sell right after you buy so you are settling both transactions relatively close so you can move straight in.

    Least stressful, most costly - bridging loan. Buy, move then sell

    Somewhere in between (albeit more hassle) - rent, sell, then buy

  • Andrew0415 on 15/09/2024 - 08:46
    +10

    We went through this and examined a bridging loan but the interest rates are ridiculous and there's a lot of pressure to get the sale done within a certain window. We ended up selling and then renting for 12 months (the cost was about the same as the interest we would have paid on the bridging loan) in the suburb we were interested in which allowed us to 1) see how we liked the suburb and 2) wait until we found the right property (which turned out to be our rental as the landlord was willing to sell).

    By the way, you can earn hefty interest after the sale if you put the money in high interest savings accounts which can offset the rental costs.

    • lethalmoney on 15/09/2024 - 09:19
      +4

      Appreciate the insight. :)

      I think on further review we will sell first. Seems to make the most sense.

      My wife has now said we can bunk in with her dad for a bit while we find the next home. Just means moving twice, but that's not a bad trade off and reduces the pressure to buy in a set window.

      And great point on the high interest 👏

      • jediknight on 15/09/2024 - 18:34
        +1

        Do you really need/want to sell? Why not convert it into an investment property, if you can afford the additional repayment? Move in with wife's dad, convert current ppor to IP, extract equity from it, find new ppor and move in.

        • trapper on 16/09/2024 - 18:14

          Mortgage is only $340k so wouldn't be a great investment property, too much equity locked in there.

    • serpserpserp on 15/09/2024 - 21:06
      -1

      By the way, you can earn hefty interest after the sale if you put the money in high interest savings accounts which can offset the rental costs.

      Or straight into BTC.

    • FrugalDealHunter on 16/09/2024 - 10:05
      +1

      +1. We did the same.

      Bridging loans have high interest and also time limits. You don’t want to be rushed into buying or selling.

  • subydooby on 15/09/2024 - 13:04
    +1

    Renovate, extend

    • JakeyJooJoo on 15/09/2024 - 19:47
      -1

      After expenses, fees and taxes, legit probably the smarter choice.

      Would like OP to have done the numbers and let us know the difference.

      • serpserpserp on 15/09/2024 - 21:07
        +4

        lol renovate in Melbourne? I can't even get someone to level the floors in my house for under 50k. Can't imagine how hard it is to get someone to A) not rip you off on an extension and then B) still actually do a good job.

  • dimitryp on 15/09/2024 - 13:43
    +3

    just keep in mind you're "wasting" about $70k+ just by switching houses.
    selling will cost you ~$30k in agent fees and maybe $3k in conveyancing, and when buying you pay 4% stamp duty (so thats $36k for your 900k house). Plus moving costs ($1-2k) and other miscellaneous stuff.

    • ozsave on 15/09/2024 - 14:42

      Exactly. Make sure you add up all the add-on costs to you for buying a new house and selling the existing house as explained above and you may decide its better financially and less stressful to renovate. The fact that you are asking the question should be red flag to begin with.

    • lethalmoney on 15/09/2024 - 15:05
      +1

      Reno + extension was estimated at ~400k.
      Pre-covid would have been nearly half that.

      We have two young kids which also makes that process a bit more difficult.

      (Knockdown rebuild @ 620k)

    • serpserpserp on 15/09/2024 - 21:08

      4%? Isn't it closer to 5% in Vic?

  • SlickMick on 15/09/2024 - 16:57
    +1

    Personally, I'd be keeping current home, but refinance it whilst getting loan for new home. That will unlock $500K equity, so you have up to $620K deposit on your new home.

    • od810 on 15/09/2024 - 19:10

      They would need total loan of 950k + 340K - 120K cash which might not be possible. Although definitely an option to explore if income can support. Avoid the whole situation of bridging loan and simultaneous settlements

  • m00c0w on 15/09/2024 - 18:50
    +2

    I've just gone through a similar process… we bought a place with a decent settlement that would allow us to sell our existing home. Problem was it took a LOT longer to sell than we had anticipated. We started looking down the path of a bridging loan and thing is with that the banks only give you about 70% of your property sale price as part of the bridging and the bridging interest rate is in the mid to high 9% territory. So we were being prepped by the bank to have a substantial amount ready out of our own pocket for settlement. It all eventually worked out without needing to go down the bridging path, but it was all quite stressful. Speak to your bank and conveyancer though, some banks really don't like doing simultaneous settlements or bridging loans. And from your conveyancing team make sure they know what the drill is as well.

    • Hangryuman on 16/09/2024 - 20:41

      yeah I'd ask an experienced conveyancing solicitor how best to set it up to cover all eventualities so you don't get caught out holding the bag (of brown stuff - on fire!)

  • od810 on 15/09/2024 - 19:02

    My friend got lucky, the new house they bought and the old house were settle on the same day. They managed to ask the new owner for extra 2 days rent to move. You can probably try to buy first and settle with the longest possible tern, then buy the new hone and try to adjust the settlement accordingly. that way you can avoid bridging loan which is usually higher interest.

    Make sure don't overpay the new property and/or overprice your current property, it will give you a lot of unnecessary stress

    Good luck

  • Chrool on 15/09/2024 - 22:08
    +1

    Recently went through something just like this, but for a much bigger upgrade. It was too hard to line up when a suitable house at not a crazy price was going to come up, and then to organise either sale of our existing place or bridging all in the same time frame. We just ended up selling and living with family which i know isnt suitable for everyone.
    It took alot of pressure off too to find something in a hurry and probably having regrets.

    One thing i havnt seen mentioned, probably the biggest issue we found was storing our stuff in between.

  • Librarytime on 16/09/2024 - 07:42
    +4

    We completed a simultaneous settlement last year, our sale was even private to a known party, and we still aged a few years in the process.

    We were effectively pinned between two other parties getting their respective sides sorted, all out of our control. Our vendor’s conveyancer somehow had knowledge that we were settling our sale on the same day and this massively reduced our ability to negotiate issues in the final pre-settlement inspection.

    Not needing the shoulder two mortgages at the same time was definitely a benefit but in hindsight I would not have done them simultaneously, and definitely not with two unknown parties.

    • lethalmoney on 16/09/2024 - 09:37

      Appreciate the insight ! :)

  • HCBargain on 16/09/2024 - 15:00
    +1

    I have a good broker if you want me to pass on contact details.

    • lethalmoney on 16/09/2024 - 15:46

      Hey, that would be appreciated. Cheers.

  • gromit on 16/09/2024 - 15:33
    +1

    Be prepared for bridging finance, things can and do regularly go wrong in house purchases and sales that add time. hope for the best, prepare for the worst.

  • MrThing on 16/09/2024 - 18:43
    -1

    Buying Our Second Home - Best Way to Finance

    Money is a good start

  • GuyfromMelbourne on 18/09/2024 - 01:12

    There are plenty of brokers that post deals here and offer cashbacks too. Just talk to one. No one can tell you the solution here unless they know the complete situation and are knowledgeable on this subject. And you obviously can’t post your financial situation here.

  • jlien on 18/09/2024 - 10:20
    +1

    Plenty of banks do bridging loans.
    Basically they lend you on your new place on the condition that you sell your current place within 6months or a year of your new place's settlement.

    You pay a double mortgage for the period of the bridge. If all goes well that's only a few months.

    This is especially handy if you find the perfect place now and you think prices will go up.

    On the other hand if you don't see anything you're really interested in; then you can afford to take your time and put your current place up for sale. Many would be purchasers are perfectly ok with renting it out to you for a period; and that can be negotiated as part of a private sale.

  • Nicoletta on 18/09/2024 - 16:47

    Same day settlement can work. Have done it twice, and while it does prematurely age you, you do avoid a bridging loan. Both times we sold first with a long settlement then negotiated to sell then buy on the same day.

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